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 Several other digital currency exchanges and prominent early-stage
investors in bitcoin responded with forceful statements in an
attempt to reassure investors of both bitcoin's viability and their
own security protocols.
The website of Mt. Gox suddenly went dark on Tuesday with no
explanation, and the company's Tokyo office was empty — the only
activity was outside, where a handful of protesters said they had
lost money investing in the virtual currency.
Hours later, Mt. Gox CEO Mark Karpeles told Reuters in an email: "We
should have an official announcement ready soon-ish. We are
currently at a turning point for the business. I can't tell much
more for now as this also involves other parties." He did not
elaborate on the details or give his location.
Bitcoin has gained increasing acceptance as a method of payment and
has attracted a number of large venture capital investors. At a
current price of about $517, the total bitcoins in circulation are
worth approximately $6.4 billion.
Investors deposit their bitcoins in digital wallets at specific
exchanges, so the Mt. Gox shutdown is similar to a bank closing its
doors — people cannot retrieve their funds.
A document circulating on the Internet purporting to be a crisis
plan for Mt. Gox, said more than 744,000 bitcoins were "missing due
to malleability-related theft", and noted Mt. Gox had $174 million
in liabilities against $32.75 million in assets. It was not possible
to verify the document or the exchange's financial situation.
If accurate, that would mean approximately 6 percent of the 12.4
million bitcoins minted would be considered missing.
A statement on Bitcoin's website said, "In the event of recent news
reports and the potential repercussions on MtGox's operations and
the market, a decision was taken to close all transactions for the
time being in order to protect the site and our users. We will be
closely monitoring the situation and will react accordingly."
The digital currency has caught the eye of regulators concerned with
consumer protections and bitcoin's use in money laundering.
Benjamin M. Lawsky, Superintendent of Financial Services for the
State of New York, said in a statement, that while all of the facts
surrounding Mt. Gox are "not yet clear, these developments
underscore that smart, tailored regulation could play an important
role in protecting consumers and the security of the money that they
entrust to virtual currency firms."
Lawsky said last month that he planned to issue rules for businesses
handling virtual currencies.
SECURITY QUESTIONS
Mt. Gox halted withdrawals earlier this month after it said it
detected "unusual activity on its bitcoin wallets and performed
investigations during the past weeks." The move pushed bitcoin
prices down to their lowest level in nearly two months.
Even with the halt on February 7, Mt. Gox still handled more
transactions than any other in the past month. Over the last 30
days, Mt. Gox has handled more than one million bitcoin transactions
denominated in dollars, or about 34 percent of activity, according
to Bitcoincharts, which provides data and charts for the bitcoin
network.
Critics of the exchange, from rivals to burned investors, said the
digital marketplace operator had long been lax over its security.
Investors in bitcoin, who have endured a volatile ride in the value
of the unregulated cyber-tender, said they still had faith in the
currency despite the problems at Mt. Gox.
"Mt. Gox is one of several exchanges, and their exit, while
unfortunate, opens a door of opportunity," The Bitcoin Foundation,
the digital currency's trade group, said in a statement. "This
incident demonstrates the need for responsible individuals and
members of the bitcoin community to lead in providing reliable
services."
United Kingdom-based Bitstamp, the second-largest bitcoin exchange
by volume, said on its website that it had done an audit of its
systems and that it was not subject to the same kind of
"malleability" that "was apparently exploited at Mt. Gox."
Similarly, BTC-E, another exchange, assured investors that it has
"no vulnerabilities during client transactions."
"VERY ANGRY"
Bitcoin has been a roller-coaster of late, rising and falling
dramatically, sometimes on an intraday basis, and its price varies
greatly depending on the exchange. The program that runs the
currency has been the target of hackers disrupting transactions
recently.
The Mt. Gox bitcoin, which traded at $828.99 before February 7, when
the exchange halted withdrawals, since plunged 83.7 percent to $135.
At Bitstamp, the price hit a low of $400 on Tuesday, down 40 percent
since February 7. It had recovered lately to $517.
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Bitstamp has had more than 800,000 U.S. dollar transactions in the
last 30 days, according to Bitcoincharts. In the last two days,
Bitstamp has handled more volume than Mt. Gox.
Mt. Gox was a founding member and one of the three elected industry
representatives on the board of the Bitcoin Foundation. A bitcoin
exchange since 2010, Mt. Gox is a relatively old player, having
grown quickly when there were few alternatives.
On Sunday Karpeles resigned from the Foundation's board.
"I'm very angry," said Kolin Burges, a self-styled "crypto-currency
trader" and former software engineer who came from London for
answers after Mt. Gox did not tell him what happened to his bitcoins,
which at one point were worth
$300,000.
Six leading bitcoin exchanges — which allow users to trade bitcoins
for U.S. dollars and other currencies — distanced themselves from
Mt. Gox.
"This tragic violation of the trust of users of Mt. Gox was the
result of one company's actions and does not reflect the resilience
or value of bitcoin and the digital currency industry," the
companies — Coinbase, Kraken, Bitstamp, BTC China, Blockchain and
Circle — said in the statement. "As with any new industry, there are
certain bad actors that need to be weeded out, and that is what
we're seeing today."
Venture capitalists, many of whom have invested in bitcoin and
related services, jumped to bitcoin's defense.
Fred Wilson, a partner at Union Square Ventures and a backer of
Coinbase, which allows consumers to easily buy and sell bitcoins
with wallets directly connected to their bank accounts, wrote in a
blog post that part of the maturation of a sector "will inevitably
be failures, crashes, and other messes."
"The wonderful thing about a globally distributed financial network
is that if one of the nodes goes down, it doesn't take the system
down," he wrote, adding that he had bought some bitcoin on Tuesday.
"I always feel good buying when there is blood in the streets in any
market."
Marc Andreessen, whose venture capital firm has invested millions in
bitcoin ventures, told CNBC that other exchanges are doing fine.
In Boston, Kyle Powers and Chris Yim, co-founders of Liberty Teller,
a company that operates a bitcoin automated teller machine, answered
customers' questions at their kiosk in South Station Tuesday. Yim
said he expects a price dip in bitcoin, but no long-term problems
with the currency.
TEETHING PROBLEMS
Virtual currency exchanges "stand to benefit from the Mt. Gox
fallout," but there will be "increased expectations on the
transparency and disclosures they need to make to customers," said
Jaron Lukasiewicz, co-founder and chief executive of Coinsetter, a
New York-based bitcoin exchange.
Steve Hudak, spokesman for Treasury's anti-money laundering unit,
the Financial Crimes Enforcement Network (FinCEN), said it is "aware
of the reports regarding Mt. Gox" but had no additional comment. To
date it is the only U.S. regulatory agency to have any oversight of
Mt. Gox.
Democratic Senator Tom Carper of Delaware, who chairs the Homeland
Security and Governmental Affairs Committee, said in a statement
that Mt. Gox "is a reminder of the damage potentially ill equipped
and unregulated financial actors can wreak on unsuspecting
consumers. U.S. policymakers and regulators can and should learn
from this incident to protect consumers."
Karpeles himself, while insisting on his own exchange's reliability,
has made no secret that bitcoin is, as he told Reuters last April, a
"high-risk investment."
"If you buy bitcoins, you should buy keeping in mind that the value
could be zero the day after."
The concierge at his home — an upscale apartment in the Shibuya
district — said he was not answering his intercom. His mailbox was
so stuffed with mail that the flap would not close.
(Reporting by Ruairidh Villar and Sophie
Knight in Tokyo, and Brett Wolf of the Compliance Complete service
of Thomson Reuters Accelus in St. Louis; additional reporting by
Cheng Herng Shinn, Stanley White and Noriyuki Hirata in Tokyo,
Dominic Reuter in Boston, Sarah McBride in San Francisco, Karen
Freifeld in New York, and Chris Peters in Bangalore; writing by
William Mallard and David Gaffen; editing by Ian Geoghegan and
Tiffany Wu)
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